[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]





 
                  EXAMINING DE-RISKING AND ITS EFFECT

                    ON ACCESS TO FINANCIAL SERVICES

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 15, 2018

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-75
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                           






                              _________ 

                 U.S. GOVERNMENT PUBLISHING OFFICE
                   
 31-348 PDF               WASHINGTON : 2018      


                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                     Shannon McGahn, Staff Director
       Subcommittee on Financial Institutions and Consumer Credit

                 BLAINE LUETKEMEYER, Missouri, Chairman

KEITH J. ROTHFUS, Pennsylvania,      WM. LACY CLAY, Missouri, Ranking 
    Vice Chairman                        Member
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
BILL POSEY, Florida                  DAVID SCOTT, Georgia
DENNIS A. ROSS, Florida              NYDIA M. VELAZQUEZ, New York
ROBERT PITTENGER, North Carolina     AL GREEN, Texas
ANDY BARR, Kentucky                  KEITH ELLISON, Minnesota
SCOTT TIPTON, Colorado               MICHAEL E. CAPUANO, Massachusetts
ROGER WILLIAMS, Texas                DENNY HECK, Washington
MIA LOVE, Utah                       GWEN MOORE, Wisconsin
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 15, 2018............................................     1
Appendix:
    February 15, 2018............................................    39

                               WITNESSES
                      Thursday, February 15, 2018

Baxter, Tim, President, SwypCo ATM Solutions, on behalf of the 
  National ATM Council...........................................     5
Orozco, Manuel, Director, Migration, Remittances, and 
  Development, Inter-American Dialogue...........................     8
Oxman, Jason D., Chief Executive Officer, The Electronic 
  Transactions Association.......................................     7
Schneider, Bryan A., Secretary, Illinois Department of Financial 
  & Professional Regulation, on behalf of the Conference of State 
  Bank Supervisors...............................................     4

                                APPENDIX

Prepared statements:
    Baxter, Tim..................................................    40
    Orozco, Manuel...............................................    68
    Oxman, Jason D...............................................    74
    Schneider, Bryan A...........................................    85

              Additional Material Submitted for the Record

Ellison, Hon. Keith:
    Written statement for the record from Charity & Security 
      Network....................................................    98
    Written statement for the record from Global Center on 
      Cooperative Security.......................................   103
    Written statement for the record from John Byrne, Esq., 
      Condor Consulting, LLC.....................................   106
Scott, Hon. David:
    Written statement for the record from National Pawnbrokers 
      Association................................................   111


                  EXAMINING DE-RISKING AND ITS EFFECT



                    ON ACCESS TO FINANCIAL SERVICES

                              ----------                              


                      Thursday, February 15, 2018

                     U.S. House of Representatives,
                                  Subcommittee on Financial
                          Institutions and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 9:32 a.m., in 
room 2128, Rayburn House Office Building, Hon. Blaine 
Luetkemeyer [chairman of the subcommittee] presiding.
    Present: Representatives Luetkemeyer, Rothfus, Posey, Ross, 
Pittenger, Barr, Tipton, Williams, Trott, Loudermilk, Kustoff, 
Tenney, Clay, Maloney, Scott, Green, Ellison, and Crist.
    Also present: Representative Hensarling.
    Chairman Luetkemeyer. The committee will come to order. 
Without objection, the Chair is authorized to declare a recess 
of the committee at any time. This hearing is entitled, 
``Examining De-risking and its Effect on Access to Financial 
Services.''
    Before we begin today, I would like to thank the witnesses 
for appearing. We appreciate your participation and look 
forward to the discussion.
    I know that this is the second hearing in 2 days for this 
committee, which is a little unusual, but appreciate all the 
participation, and we will get a few more members here shortly. 
It is a little early. Lot of other activities going on this 
morning, so bear with us and thank the committee members for 
their participation.
    I now recognize myself for 5 minutes for the purpose of 
delivering an opening statement.
    In 2012, a group of industry leaders came to me to tell me 
that they had lost access to financial services overnight. 
Their long-standing bank accounts were closed. These men and 
women didn't bank within the same institution. They weren't 
from the same part of the country. And there was no evidence 
they were participating in an illegal activity.
    However, they were all part of the same business, a 
business that was unsavory to Washington bureaucrats. This was 
the beginning of Operation Chokepoint, the joint initiative 
between the Department of Justice (DOJ) and the FDIC (Federal 
Deposit Insurance Corporation) to choke off certain businesses 
from the financial services they needed to survive, not based 
on wrongdoing but on political motivation.
    Operation Chokepoint has a chilling effect on financial 
institutions and their customers. What started as an effort to 
push non-deposit lenders out of the banking system has 
metastasized. This larger, more aggressive trend of de-risking 
has spread to other regulatory agencies, banks, institutions, 
and industries.
    Like many of my colleagues, I have heard too many people 
who have lost access to financial services. Accounts have been 
terminated for a money servicing business in Cincinnati. It was 
a payday lender from St. Louis; an ATM operator from the 
suburbs of Phoenix; amusement and gaming operators in Oregon 
and California.
    The trend has hit pawnbrokers in Dallas, San Diego, 
Oklahoma City, from Rhode Island to Colorado and nearly every 
State in between.
    Across the financial spectrum this dangerous trend of de-
risking is alive and well. Most likely it is a result of 
increased exam pressure and compliance costs. The banks and 
credit unions are continuing to close accounts of long standing 
customers, in some cases even disclosing in writing that the 
regulatory pressure was simply too intense and the hurdles too 
insurmountable.
    These issues beg some very serious questions. Where do 
these businesses go when pushed out of the U.S. financial 
system? What are the implications for law enforcement? Does 
this attempt to de-risk actually create more significant risks 
for law enforcement, financial stability, and consumer 
protection?
    The reality is that removing risk from the system actually 
creates a problematic environment where entire industries that 
were once part of a highly regulated system are pushed into the 
shadows.
    This is a conversation we have had in the BSA/AML (Bank 
Secrecy Act/anti-money laundering) space. We need to ensure 
that there are processes and procedures in place so that we can 
guard against fraud and criminal activity in a meaningful way 
without imposing unnecessary and unproductive burdens on 
institutions.
    This is not a partisan issue and one that should sound 
alarms for all of my colleagues. Working together, this 
committee secured passage of H.R. 2706, my Financial 
Institutions Consumer Protection Act, which will help curb de-
risking by requiring Federal banking agencies to establish a 
transparent process by which account termination requests and 
orders must be made.
    However, we must continue to shine light on this issue so 
that we understand why de-risking is continuing and 
implications it has on our accounting, both at home and abroad.
    We have an excellent slate of witnesses today. We thank you 
for appearing. I look forward to your testimony.
    The Chair now recognizes the gentleman from Georgia for the 
purpose of delivering an opening statement. Mr. Scott?
    Mr. Scott. Thank you. Yes, thank you very much, Mr. 
Chairman. This is indeed, as you have said, a very important 
hearing. And a part of what we must do is what I refer to as we 
have to shine a light out of the darkness here.
    You can overregulate and when you overregulate there is a 
trickle-down effect and unintended consequences, and you wind 
up hurting the very people you are trying to help.
    And nowhere is that more significant in what you are trying 
to do with our chokepoint legislation, H.R. 2706, which I 
commend you on working with. I am proud to work with you on 
that so that we can.
    And then you have the other, the Bank Secrecy Act which 
affects our financial system is very intricate. It is complex. 
It is complicated, and it is that way because we have a very 
diverse clientele out there. You have people on the up end of 
the income scale making millions of dollars that we have to 
work with on Wall Street investment.
    But then you have that other person. You have 50 million, 
60 million unbanked and underbanked people who if they have an 
emergency surgery they need help. All they have as a lifeline 
is that pawnbroker.
    And now we have as a result of overregulation many 
traditional banks that have had a long working, good history 
with pawnbrokers, all of a sudden we have our great banks 
closing their accounts because of this overregulation.
    Mr. Chairman, I think this is a great hearing. I look 
forward to it. Welcome all of the distinguished panelists we 
have, and thank you very much.
    Chairman Luetkemeyer. Thank the gentleman from Georgia for 
his comments and his hard work on our issues to this point as 
well.
    Today we welcome the testimony of our witnesses, Secretary 
Bryan Schneider, Illinois Department of Financial and 
Professional Regulation on behalf of the Conference of State 
Bank Supervisors; Mr. Tim Baxter, President, SwypCo ATM 
Solutions on behalf of the National ATM Council; Dr.--or Mr. 
Jason Oxman--I almost gave you a promotion there, Jason--Chief 
Executive Officer, Electronic Transactions Association. You 
looked like a doctor with your bow tie this morning, so--Dr. 
Manuel Orozco, I hope I got that right--Director, Migration, 
Remittances, and Development, Inter-American Dialogue.
    Thankfully you all have easier names to pronounce than the 
group we had yesterday, because I think every single one of 
them was like Luetkemeyer. It was different to pronounce. But 
hopefully we will be able to be respectful with your names 
today.
    I thank each of you for being here. You will be recognized 
for 5 minutes to give an oral presentation of your testimony. 
Without objection, each of your written statements will be made 
part of the record.
    For those of you who haven't been here before, the lighting 
system is green go. When the light turns yellow it is you have 
about a minute to wrap up. And turns red, why, I will gavel you 
out here.
    Also, if you would pull--those microphones do come forward. 
A lot of times--I see Mr. Orozco there is pretty far from him. 
You can string it out or you can pull that box to you if it 
makes it more comfortable to you.
    Our sound system here is not that great. The acoustics are 
not the greatest, so we want to make sure everybody has a 
chance to be heard. And our folks who are taking the testimony 
today need to be able to hear you clearly. We thank you for 
that indulgence.
    And with that, Mr. Schneider, you are recognized for 5 
minutes.

                  STATEMENT OF BRYAN SCHNEIDER

    Mr. Schneider. Good morning, Chairman Luetkemeyer, Ranking 
Member Clay and members of the subcommittee. My name is Bryan 
Schneider. I am the Secretary of the Illinois Department of 
Financial and Professional Regulation. It is my pleasure to 
testify today on behalf of the Conference of State Bank 
Supervisors.
    I want to thank Chairman Luetkemeyer and the subcommittee 
for its work over many years on this important issue. State 
regulators are locally focused and locally accountable.
    We have seen the consequences of de-risking for our banks, 
their customers, and the communities they serve.
    State regulators charter and supervise 78 percent of the 
Nation's banks. We also are the primary regulators of more than 
23,000 non-depository financial services providers, including 
money service businesses, commonly known as MSBs.
    Data collected through our nationwide multistate licensing 
system, NMLS, shows that MSBs are on pace to handle over $1 
trillion in transactions during 2017. As a banking regulator, I 
expect State-chartered banks in Illinois to understand the 
risks of their customers and to effectively manage those risks.
    I do not expect nor require my supervised banks to reject 
entire categories of legally operating businesses. As a 
regulator of a broad range of MSBs, I see firsthand the 
challenges these companies can face in getting and maintaining 
banking relationships.
    Indiscriminate de-risking, a practice that eliminates MSB 
bank accounts, not only weakens access to financial services, 
but actually makes enforcing the Bank Secrecy Act more 
difficult. It also becomes a public safety issue.
    I am aware of de-risking both in Illinois and across the 
Nation. I hear stories about how legitimate MSBs physically 
carry large amounts of cash because they have no other means of 
money transmission, a dangerous practice.
    Just last year, an MSB in Seattle was robbed of nearly 
$130,000 in cash that it was keeping in an in-store safe 
instead of a bank account. Two years ago my own agency 
identified an MSB whose agent transported $686,000 in cash to 
Jordan after its credit union accounts were closed.
    Today I want to emphasize the commitments State regulators 
have to responsible and efficient MSB oversight. I will also 
share some of the solutions we have developed to give 
regulators, industry, and consumers greater visibility into the 
existing, emerging, and evolving risks for MSBs.
    Virtually all States have a comprehensive and rigorous 
licensing, reporting, and examination process for MSBs. If an 
MSB is found to be out of compliance or in violation of these 
requirements, it is subject to enforcement action. And in 
extreme cases, this can include revoking its license.
    Enforcement actions, as well as licensing information, are 
available to the public on our consumer-facing website. And 
indeed, there were nearly 3 million visitors to the site last 
year.
    This week, CSBS (Conference of State Bank Supervisors) 
released a self-assessment tool for MSBs intended to reduce 
uncertainty surrounding BSA/AML compliance, increase 
transparency, and address de-risking. CSBS launched a similar 
tool for banks early last year.
    In October, the CSBS task force that I chair created a 
FinTech industry advisory panel made up of companies from the 
payments and money transmission, lending, and community banking 
sectors. The panel solicits industry input to help States 
modernize regulatory regimes, identify friction points in 
licensing and multi-State regulation, and discuss solutions.
    Right now, CSBS is building a new technology platform 
designed to transform State examinations, helping States 
respond to increasingly borderless financial markets. State 
regulators also are working together to find more efficient 
ways to regulate MSBs.
    Just last week, several States, including my own of 
Illinois, announced a multi-State agreement that standardizes 
the licensing process for MSBs. Under this agreement, if one 
State reviews key elements of State licensing for a money 
transmitter, including BSA compliance, then other participating 
States will accept that work.
    This effort to streamline the MSB licensing process is a 
great example of State-driven initiative, innovation, and 
experimentation.
    Thank you for the opportunity to testify today, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Schneider can be found on 
page 85 of the Appendix]
    Chairman Luetkemeyer. Thank you, Mr. Schneider. He yields 
back his time.
    Mr. Baxter, you are recognized for 5 minutes.

                     STATEMENT OF TIM BAXTER

    Mr. Baxter. Well, Chairman Luetkemeyer and Ranking Member 
Clay and members of the subcommittee, thank you for the 
opportunity to be here to testify before you today.
    My name is Tim Baxter. I am President and Co-owner of 
SwypCo, LLC, an ATM solutions company that operates ATMs, as 
well as provides ATM services to other operators and owners. I 
am also a former U.S. Marine who enlisted in 1970.
    I am testifying before you today on behalf of the National 
ATM Council, an association of individuals of businesses 
engaged in the ownership, operation of servicing independent 
ATMs in the United States. Of the approximately 470 ATMs 
located throughout the United States, 60 percent of them are 
independently owned.
    Since the launch of Federal law enforcement regulatory 
agencies of Operation Chokepoint in 2013, Chokepoint continues 
to be a growing threat to the continued existence of America's 
independent industry, an industry that began in 1996.
    An alarming number of banks in the name of de-risking their 
institutions because of Chokepoint have closed the bank 
accounts of independent ATM operators throughout the United 
States. Hundreds of small businesses have been told by their 
banks without any prior notice or any explanation that their 
accounts are closed.
    These account closures began to occur when Operation 
Chokepoint was announced and continued through 2016. In 2017, 
the accelerator of Operation Chokepoint was placed to the floor 
and we saw more bank account closures than any other prior 
years before.
    There are two things that are essential that I believe this 
subcommittee should understand. First, there is no logical 
reason given any way that our industry is structured that we 
operate for banks, with banks, and we are heavily regulated 
through our sponsoring banks.
    Second, no independent ATM provider can remain in business 
without a bank account. Every ISO (independent sales 
organization), an independent ATM provider, must be sponsored 
by a sponsoring bank before getting into business.
    Anyone who wanted to become an owner is heavily vetted 
through our due diligence process, and if they survive that 
process then thereafter the ISOs are required to submit 
quarterly reports to the sponsoring bank for each terminal, as 
well as undergo annual reviews and audits by the sponsoring 
bank.
    All ATM providers must operate in accordance with the 
detailed network rules associated with our industry. When it 
became clear, despite detailed safeguards, that treating ATM 
operators as high risk was considered appropriate by banks and 
regulators, NAC (National ATM Council) set out to develop a set 
of operational guidelines for independent operators in the best 
interest of our industry.
    NAC modeled our guidelines based upon the provisions of the 
FFIEC's (Federal Financial Institutions Examination Council's) 
BSA/AML examination manual published by the FFIEC on their 
website.
    An independent ATM industry plays a vital role in the 
Nation's economy, for many of our terminals are located in 
underbanked, low-income neighborhoods in very rural areas where 
there are few banks and fewer bank-owned ATMs.
    Continued account closures will force even more independent 
operators out of business and would choke out convenience to 
cash for millions of Americans.
    The consequences of disappearance of independent ATMs to 
our Nation, especially to those in the underbanked areas, are 
severe, they are supplied primarily by independent operators, 
includes Americans that receive benefits monthly through the 
EBT cards. Many of these Americans depend upon our ATM machines 
to be able to access cash each month.
    NAC, and including myself just last July, met with the 
acting comptroller and his senior staff at the OCC (Office of 
the Comptroller of the Currency). We have offered to work with 
the OCC toward finding resolutions that would further the 
common interest of NAC, the OCC, and other banking agencies to 
achieve varied and effective enforcement of statutes, 
regulations, while assuring availability of financial services 
to law-abiding legitimate businesses without imposing undue and 
unfair treatment.
    With respect to the subcommittee, we would appreciate it if 
you would join us, and urge the Comptroller's Office and other 
Federal agencies to work with NAC and the men and women of NAC 
to make this industry a safe industry and an operational 
industry that everyone can work with.
    [The prepared statement of Mr. Baxter can be found on page 
40 of the Appendix]
    Chairman Luetkemeyer. The gentleman yields back.
    With that, Mr. Oxman, you are recognized for 5 minutes.

                   STATEMENT OF JASON D. OXMAN

    Mr. Oxman. Thank you, Mr. Chairman and thank you to--thank 
you Mr. Chairman. And thank you to you and Ranking Member Clay 
and the subcommittee for having us here today.
    The Electronic Transactions Association (ETA) appreciates 
the opportunity to speak to the payments technology industry's 
efforts to fight fraud and ensure that all consumers have 
access to safe and convenient financial services.
    ETA is the leading trade association for the payments 
industry. We represent more than 500 companies that offer 
electronic transaction processing products and service. In 
short, ETA members power commerce in this country.
    It is an exciting time in the payments industry. Consumers 
and merchants benefit from a robust payment system that 
provides nearly universal access and strong consumer 
protections against fraud.
    Consumers can pay for goods and services using a wide 
variety of new payments technologies, ranging from EMB chip 
cards to mobile wallets to contactless cards. All of these are 
secured by advanced technology including encryption and 
tokenization, and consumers are protected against any liability 
for fraud.
    Now, notwithstanding this progress in technology there have 
been challenges, particularly from Operation Chokepoint. It has 
contributed to the de-risking and ultimately limited consumer 
access to financial services while also making it more 
difficult for legitimate businesses to access the payment 
system.
    Today I would like to, in particular, thank Chairman 
Luetkemeyer for his efforts in fighting Operation Chokepoint 
and for H.R. 2706, which we look forward to seeing enacted into 
law.
    I would also like to highlight the way that ETA members and 
the payments industry combat fraud and explain why a 
collaborative approach between Government and private sector, 
as opposed to an approach like Operation Chokepoint, is the 
best way to protect consumer interests and expand financial 
inclusion.
    As payments companies are generally responsible in most 
cases for fraud in the first instance under both Federal law 
and payment network rules, our industry has a strong interest 
in making sure that fraudulent actors do not gain access to 
payment systems. And we found considerable success.
    In 2016, nearly $6 trillion in credit, debit, and prepaid 
card transactions were processed in the U.S., of which only $9 
billion was fraudulent. That is a fraction of a tenth of a 
percent.
    In addition, a recent survey of ETA member companies found 
that more than 10,000 merchants were discharged from the 
payment systems for fraud last year. For both back-end systems 
as well as consumer payment products, payment technology firms 
have heavily invested time and resources into ensuring data 
security.
    For example, ETA members have deployed effective due 
diligence programs to prevent fraudulent actors from accessing 
payment systems and terminating actors who are fraudulent from 
the systems. Those programs have helped to keep the rate of 
fraud on payments at remarkably low levels.
    ETA also works closely with industry leaders and Federal 
regulators like the FTC (Federal Trade Commission) to establish 
guidelines that prioritize security and risk mitigation. In 
2014, ETA first published our guidelines on merchant and ISO 
underwriting and risk monitoring.
    In 2016, we published the Payment Facilitator Guidelines 
and today we are pleased to announce the 2018 update to the ETA 
guidelines. These new guidelines published today contain 
updated industry best practices, including updates with the 
Financial Crimes Enforcement Network's (FinCEN) new beneficial 
ownership rule.
    These guidelines provide a basis for payments companies to 
work cooperatively with Federal regulators and law enforcement 
toward our shared goal of stopping fraud. Unfortunately, such 
cooperation has not always been the case.
    For example, Operation Chokepoint employed the wrong tools. 
It was unnecessarily confrontational, and it created serious 
risks to law-abiding processors without producing any benefits 
to consumers. It was based on the flawed assumption that 
increasing liability on lawful payment companies for the 
actions of legal merchants would somehow reduce fraud.
    In practice, such new liability standards on payments 
companies resulted in serious adverse consequences for both 
merchants and payments companies as well, the blunt force 
discouraged banks and other processors from working with legal 
merchants that were branded as politically unfavored.
    Although Operation Chokepoint thankfully has been halted, 
it is important to recognize there is nothing to stop the 
Department of Justice or the CFPB (Consumer Financial 
Protection Bureau) or the FTC or even a State attorney general 
from bringing a case today that looks very much like Operation 
Chokepoint.
    We are one of the most innovative industries in the world 
in payments. Our job is to provide unbanked and underbanked 
consumers and merchants access to financial systems. And we 
look forward to an opportunity to work collaboratively with 
Government and with law enforcement to fight fraud in ways that 
are more productive than Operation Chokepoint.
    Thank you for the opportunity to be here today.
    [The prepared statement of Mr. Oxman can be found on page 
74 of the Appendix]
    Chairman Luetkemeyer. Thank you, Mr. Oxman.
    Dr. Orozco, you are recognized for 5 minutes.

                   STATEMENT OF MANUEL OROZCO

    Dr. Orozco. Thank you very much, Mr. Chairman. Members of 
Congress thank you for allowing me to testify upon this subject 
of de-risking, particularly providing solutions to this 
problem.
    The ecosystem of financial services today is far more 
complex than at any other point in time. There is an amazing 
accessibility of financial services, financial vehicles, and 
financial institutions providing services to people and to 
businesses to operate. That has created a very complex web of 
interrelationships that has enabled a much more robust system 
of financial services to people.
    However, in many cases we have noticed we have seen that 
banks have deemed and perceived the handling of third-party 
funds from these MSBs a financial risk. My colleagues have 
explained some of the reasons and the problems they face with 
this problem. And overall, what we find is at least three major 
patterns.
    The first one is that decisions to terminate bank accounts 
occur and permanently add discretionary scope with limited 
accountability. There is a problem of transparency and 
accountability in explaining why a bank account is terminated 
against a money service business.
    Second, and this is a troublesome issue, is that the 
relationship between the trade and the account closing do not 
occur clearly in correspondence to what risk is happening.
    For example, we see money transfers taking place from parts 
of the United States through other parts of the world and there 
is no correspondence between the risk perceived and the real 
threat taking place.
    Another problem is that the increasing financial services 
is mostly coinciding with the increase in determining account 
closures. There are at least five issues where this problem can 
be solved.
    The first one is it is important to deal with more 
transparency and accountability among permanently bank and 
financial institutions.
    Second, it is really important to look into better industry 
trade and also country risk assessment. Many of the assessments 
of receivers are not evaluated properly in terms of where the 
threat is happening.
    Data sharing through risk-based data clearinghouses is also 
an important area of attention. For example, many of these 
companies, the money services businesses, are the first line of 
defense against financial crimes.
    And they have significant knowledge and information about 
where perceived threats can happen and how to stop them. 
Sharing that information will be important to really address 
the threats.
    Another important aspect is that it may be important to 
consider to include bank MSB services in the review of the 
Community Reinvestment Act. The Reinvestment Act tried to look 
into how banking institutions are providing financial services 
to underserved communities. And when it comes to the account 
closures, this is really an important matter.
    There are differing experiences in countries where the 
requirement is to expect banks to really provide documentation 
as to the reasons of account closures can really improve the 
support of MSBs.
    In Spain, for example, in Europe, in the European Union, 
the Payment Service Directive requires that if a bank is going 
to close an account it needs to justify why they are doing it 
and document it. Giving the right also of rebuttal to an MSB is 
also an important procedure.
    When it comes to risk assessment, I think we need to work a 
little bit more on that. The existing data on country and 
industry risk is not systematic and oftentimes is not shared.
    The assessment of risk does not always coincide with the 
account closures, although for example when we look at 
remittance cross-border payment companies, they are able to 
manage risk. There is a recognition that they do significant 
work along those lines.
    But when we look at the correlation between risk and money 
transfer to different regions in the world the correspondence 
doesn't exist, yet those companies are actually affected along 
those lines.
    Thank you very much.
    [The prepared statement of Mr. Orozco can be found on page 
68 of the Appendix]
    Chairman Luetkemeyer. Thank you, Dr. Orozco and thank all 
the witnesses for their testimony today.
    With that, I recognize myself to begin the questioning for 
5 minutes.
    Mr. Schneider, it would seem to me after listening to all 
the testimony this morning that the regulators seem to be 
putting pressure on the financial institutions to the point 
where they are making decisions to no longer be able to 
continue making relationships with different entities.
    And whether there is any fire to the smoke that is being 
blown at them, is hard to assess, but it would seem to me that 
your job as a financial regulator is more to watchdog, to watch 
over the banks, the financial institutions, to see that they 
are doing things according to the law versus micromanaging. 
Would you agree with that statement?
    Mr. Schneider. Fundamentally. We don't run banks. Banks run 
banks. We are here to make sure that they operate in a safe and 
sound manner and by no means--if they make a business decision 
that certain types of business are not consistent with their 
mission, that is fine.
    But they shouldn't feel untoward regulatory pressure to 
disqualify certain categories of legitimate businesses from 
their portfolio because of regulatory pressure. And we make 
that clear when we talk to banks, quite candidly.
    Chairman Luetkemeyer. Well, every bank has a different 
business model. A credit union has a different model.
    Mr. Schneider. Exactly.
    Chairman Luetkemeyer. And they are all located in different 
communities. They have different needs.
    Mr. Schneider. Right.
    Chairman Luetkemeyer. And they are different sized, 
different sorts of makeups. By the way, their economies are all 
diversified. It is important, I think, that you have the 
discretion to be able to go in and allow the bank to do what it 
needs to do to grow the local economy and make it all happen. 
It is frustrating to see this happening.
    When you see--I had people, with regards to the BSA/AML 
stuff, and a couple of you guys are caught in this, especially 
the southern tier States.
    Banks are doing banking business with individuals and 
companies in Central and South America are being chokepointed 
out by the bigger banks here in this country saying we are not 
going to do business with you because you do business down 
there.
    Mr. Schneider. Right.
    Chairman Luetkemeyer. How can these banks micromanage these 
other banks? They're just customers of them--
    Mr. Schneider. In some cases I think this is perhaps 
fundamentally because of a lack of understanding of the 
significant oversight that money service businesses have at the 
State level. They are licensed by State regulators across the 
country and examined in depth.
    We in the State system have the capacity to examine every 
multi-State operating money service business on a pace of once 
every 18 months. These are heavily regulated businesses, and if 
banks understood that better I think they may be less reluctant 
to bank them.
    Chairman Luetkemeyer. Mr. Baxter, thank you for your 
service. You mentioned you were a Marine, and I appreciate 
that. You are one of the industries that has just in recent 
times been targeted. You weren't on the initial list of the 
FDIC high-risk businesses, but you have become a target for 
them.
    Can you tell me what you believe why that has happened and 
the response that you are getting? And how you are going to try 
and approach all this and any other comments you would like to 
make? Because I know you are in the crosshairs right now.
    Mr. Baxter. I believe that with the inception of Operation 
Chokepoint, it particularly reached a stage in which regulators 
were going into banks and asking specifically do you have ATM 
accounts?
    That is a specific question of targeting one specific 
industry where they are almost requiring--and I can't say they 
are requiring because I am not standing in their offices. And I 
am not involved in these conversations.
    But when you start receiving letters in the mail from your 
bank, such as I did and many of my clients did and many of my 
colleagues did throughout the industry, that have simply zero 
explanation as to why your account is being closed, doesn't 
even mention that you are high risk, but it has zero 
explanation, and you call to ask for an explanation because you 
now feel like a criminal, you get no explanation.
    I would ask the committee to consider why is it that the 
banks and the regulators apparently, from what I see and what 
we see in our industry, do not want us to be in business?
    Why do we want to remove what has been an excellent system 
in managing ourselves through our system that we have with 
sponsoring banks, network rules, applying everything that we 
can through the industry standards to operate an ATM machine 
exactly as a bank operates an ATM machine?
    Yet all of a sudden we are deemed unacceptable citizens in 
society. How are we going to go about replacing 60 percent of 
all the ATM machines in the United States?
    Chairman Luetkemeyer. My time has expired. Thank you very 
much for your comments.
    With that, we go to the Ranking Member of the committee, 
Mr. Clay, the gentleman from Missouri, recognized for 5 
minutes.
    Mr. Clay. Thank you, Mr. Chairman and let me go back to Mr. 
Baxter. Some industry actors have stated that the types of 
extreme fluctuations in cash turnovers that are a normal part 
of the ATM business are actually triggering regulatory acting 
that results in banks closing accounts for ATM owners and 
operators.
    Can you discuss what is pushing financial institutions to 
de-risk in these situations in spite of knowing the needs of 
this type of small business?
    Mr. Baxter. Well, let me address the fluctuation of cash 
that you brought up. That occurs throughout various times of 
every month in every city and State. The first of the month is 
heavier usage so you see a higher fluctuation of cash out and 
cash back in.
    There are other instances that will create that. We are 
also asked on a regular basis by NASCAR, by carnivals, by fairs 
in every city, State that you can think of to supply ATM 
machines so that vendors have cash available to sell hot dogs 
and corn dogs and Cokes to men, women, and children.
    So we do that. That is what we do. That is how we make a 
living.
    Mr. Clay. Yes.
    Mr. Baxter. That is how our cash can influx and change.
    Mr. Clay. Mr. Baxter, why do you think there are more 
independent ATMs located in areas with higher concentrations of 
underbanked and unbanked citizens as opposed to the big banks, 
Chase Manhattan, Bank of America, locating their ATMs in those 
areas?
    Mr. Baxter. Because we are hungry. We are willing to do 
that. We are willing to go into those areas. We are willing to 
service those communities. The banks are not. They are not 
willing to do that.
    Mr. Clay. The banks just turn their back on people who they 
don't think they can make enough money off of, is what you are 
saying?
    Mr. Baxter. That and potentially risk of robbery, which we 
take that risk.
    Mr. Clay. The risk of ATM robberies?
    Mr. Baxter. Yes, sir, of the ATM machines being broken 
into.
    Mr. Clay. OK. Is that--
    Mr. Baxter. Our ATM machines, sir, are located inside 
convenience stores, for example--
    Mr. Clay. Sure.
    Mr. Baxter. --and most convenience stores throughout the 
country. Those businesses are not open 24 hours a day and 
sometimes those businesses get broken into--
    Mr. Clay. I see.
    Mr. Baxter. --and our cash gets stolen.
    Mr. Clay. I see. All right, thank you for that--
    Mr. Baxter. You are welcome.
    Mr. Clay. --response.
    And Mr. Schneider, what actions have your department taken 
to assess the impact that de-risking may be having on access to 
financial services for vulnerable populations?
    Mr. Schneider. Well, it is certainly a concern to us that 
all of the citizens in all of our States receive a wide variety 
of financial services. In my State we have very large banks, we 
have very, very small banks, and we have all sorts of non-
depository institutions.
    We talk with our banks to make sure they understand the 
risks that certain types of clients present to them so they 
don't make a misinformed decision to disqualify a certain type 
of actor from getting banking services.
    And we work closely with innovators who are trying to bring 
new financial services to traditionally underserved communities 
so that they are able to deploy them quickly.
    And our role is to be nimble, to foster innovation, and 
fundamentally to make sure everyone understands that if you are 
dealing with a non-depository money service business they are 
appropriately and thoroughly regulated, including for BSA/AML 
compliance.
    Think about that level of scrutiny that they are receiving 
when you are making your risk decision as to whether or not to 
bank that particular company.
    Mr. Clay. And have you found that independent owners of 
ATMs' fees are higher than regular banks or how does that work?
    Mr. Schneider. I don't want to misreport anything. We don't 
have studies in Illinois that I am aware of that look at those 
fees.
    We have actually tried to reduce regulatory burden on non-
bank ATMs, eliminating unnecessary registration requirements, 
so hopefully that can help drive lower fees for everyone.
    Mr. Clay. It is possible that the regular banks charge 
higher fees or just don't want to be in those communities at 
all?
    Mr. Schneider. It is entirely possible and that could be 
something that we should get to studying at some point.
    Mr. Clay. Thank you so much and my time is up.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the Vice Chair of the committee, the 
gentleman from Pennsylvania, Mr. Rothfus, is recognized for 5 
minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Mr. Oxman, during the Obama Administration the Federal 
Deposit Insurance Corporation released a list of supposedly 
high-risk businesses that should be targeted for possible de-
risking. This list included payday lenders, tobacco vendors, 
and pawnbrokers. Do you know how this list was populated?
    Mr. Oxman. Thank you for the question, Mr. Vice Chairman. 
That list I think is one of the most stark examples of what 
Operation Chokepoint was really about. It was effectively a 
concession that this was a list of politically motivated, 
targeted merchant categories as far as we could tell, that were 
otherwise offering legal services.
    But it was a signal to the payments industry that providing 
lawful payment services to those merchant categories would 
result in heightened scrutiny by Federal regulators.
    That was the entire purpose behind Operation Chokepoint. 
Seeking to effectively deputize payments companies in a, what 
we considered a politically motivated, by the prior 
Administration, effort to target disfavored merchant 
categories.
    Mr. Rothfus. Well, was there a basis that the FDIC could 
decide that these industries were high risk?
    Mr. Oxman. As far as we could tell, looking at the list 
published by the prior FDIC, the basis was not one of any 
substance based on anything that we could determine other than 
a signal--
    Mr. Rothfus. What signal--
    Mr. Oxman. --to our industry to stay away from those 
disfavored merchant categories.
    Mr. Rothfus. What about risk in the sense of high risk? Was 
there a definition for, quote, ``high risk''?
    Mr. Oxman. The prior FDIC did not provide us the kind of 
guidance that would have been a tie between the delineation of 
those merchant categories that you mentioned and the very 
sophisticated risk analysis that our industry has been using 
effectively for decades--
    Mr. Rothfus. Well, that is--
    Mr. Oxman. --to prevent fraud.
    Mr. Rothfus. Risk in the sense of a risk to the financial 
system? Risk in the sense of, look, there are actors out there 
that we suspect might be engaged in some activity? Again, I am 
trying to get my arms around what was, quote, ``high risk//?
    Mr. Oxman. Our industry, the payments industry, has been 
working in conjunction with Federal regulators literally for 
decades on management of risk issues, does have very 
sophisticated, very effective means of determining high-risk 
merchants. And it is not done necessarily by the type of 
categories that you mentioned.
    That type of listing of merchant categories without any 
further analysis--
    Mr. Rothfus. Well, what is a high--what would be a high-
risk merchant?
    Mr. Oxman. A high risk merchant would include an analysis, 
for example, of what we call chargebacks. Chargebacks are 
effectively returns initiated by consumers using their credit 
card or debit card at a merchant. If chargebacks reach a 
particular level, that suggests that there might be something 
going on and that the merchant should be examined more closely.
    Again, has nothing to do with the category that the 
merchant happens to be in or the particular products the 
merchant has to sell.
    Mr. Rothfus. So there was a prejudice going in where that 
analysis wasn't done?
    Mr. Oxman. It appeared to us in examining the list provided 
by the prior FDIC that it was based on the types of products 
sold and not on actual analysis of the relative risk to the 
payment system of those products.
    Mr. Rothfus. Mr. Schneider, in your testimony you said that 
virtually all States have a rigorous licensing and reporting 
and examination processes in place for money service 
businesses. You also described some of the enforcement actions 
that State regulators have taken against the bad actors.
    When you consider the strong role that State regulators 
play in ensuring that money service businesses are not conduits 
for illicit finance, it is interesting that Federal regulators 
still targeted these businesses for de-risking. Do you believe 
that State-level regulators are doing enough to counter the 
abuse of our financial system by illicit actors?
    Mr. Schneider. I certainly do. Again, we conduct numerous, 
hundreds of exams each year of money service businesses, 
including for BSA/AML compliance. And we are on the frontline 
with those companies to help them understand what their own 
risks are.
    We just today issued a self-assessment tool that money 
service businesses can use on their own to better understand 
their risks so that they mitigate their risks so when we come 
in to examine we can give them a clean bill of health.
    I think State regulators are really on the frontline in 
making sure these non-depository institutions follow the law. 
And that should give great comfort to our Federal counterparts, 
as well as to banks. And my--
    Mr. Rothfus. Well, on the Federal counterparts, are Federal 
regulators consulting with the State regulators?
    Mr. Schneider. We work very closely with Federal 
regulators, FinCEN, the OCC, the FDIC across the board. Mr. 
Williams has a bill, H.R. 3626 that would help us cooperate 
even greater with our Federal counterparts.
    Mr. Rothfus. My time is expired. Thank you.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the gentlelady from New York, Mrs. 
Maloney, recognized for 5 minutes.
    Mrs. Maloney. Thank you. I want to thank you and the 
Ranking Member for holding this hearing. And I think it is on a 
tremendously important issue, and I am very sympathetic to 
neighborhoods in our country having access to ATM machines. It 
is in some cases the only banking access they have.
    When I was on the city council I represented a very 
economically challenged neighborhood, East Harlem. And the 
banks redlined it, meaning they all left. They just closed 
their doors and left without any banking services.
    I remember I appealed to them to pool their resources and 
leave one ATM machine so there would be some banking in this 
underserved neighborhood. And they wouldn't do it. And then one 
bank opened up an ATM machine and left it in the community and 
I am very grateful to this day to that bank.
    When people close up all these ATM machines they are really 
closing up access to capital and to banking in communities. And 
I feel that we have a responsibility to make sure that all 
neighborhoods are served and if banks don't want to be any part 
of helping low-income neighborhoods, then maybe we have to look 
at doing something through the Federal Government. We have to 
figure out some way to help them.
    I first want to ask Mr. Baxter, as you know, there is a lot 
of evidence that some banks are terminating the accounts of 
independent ATM operators. And they say that they are doing it 
because of regulatory risk and the pressure from the 
regulators.
    But there are sometimes allegations that they are doing it 
for competitive reasons, that they don't want the independent 
ATM operators competing with the bank's own ATMs. But sometimes 
when the banks do this, they claim that they are doing this 
totally for regulatory reasons.
    And how can we ensure that they aren't using the concept of 
regulatory risk as an excuse to undermine their competitors?
    Mr. Baxter. Thank you for asking that question, and I do 
agree with your statement in that there is a competitiveness to 
this theory of closing down companies that have been in 
operation for 10, 15 years--in my case, in my company for 4 
years.
    I can't really answer why they have taken this position all 
of a sudden other than it does cause you to think that maybe 
there is a competitive edge here that the bank is interested in 
as well. But our industry has been in existence, as I said 
before, and approved to be in existence since 1996.
    My question that I would love to ask the banks and the 
regulators and even the administrations of our country that 
have made decisions to close our bank accounts is what happened 
overnight where we all of a sudden became a high-risk business 
that exists in this country that hadn't existed for 14 years 
that I have been in the industry in total?
    It is overwhelming and shocking to have businessmen that 
have invested in small business their life savings, that are 
school bus drivers in Tennessee, that have various other 
occupations that they do besides their small ATM business to 
bring cash to America.
    And that is the way I look at it. We bring cash to America. 
We are not a money service business. We are a business that 
delivers cash to America.
    I really don't know how we can overcome what is currently 
taking place without your help, without your insight, without 
your leadership to hear our cry and to hear that this industry 
is suffering and it will ultimately go away if something isn't 
done by the great country that we live in and the people that 
lead this country.
    Mrs. Maloney. Where are there more independent ATMs but no 
bank ATMs?
    Mr. Baxter. Where are there more? In rural areas.
    Mrs. Maloney. In rural areas?
    Mr. Baxter. And underserved banked areas.
    Mrs. Maloney. So in low-income areas and rural areas?
    Mr. Baxter. Correct.
    Mrs. Maloney. And--
    Mr. Baxter. But you will find us also in malls, cities all 
over the country.
    Mrs. Maloney. And if banks just cutoff all independent ATM 
operators, who would be harmed the most?
    Mr. Baxter. America in general will be harmed the most. The 
people that are underserved and underbanked will be hurt the 
most. That is who will be hurt the most, in addition to the 
hundreds of ATM operators that will be placed out of business.
    And I will have to look over to this beautiful lady in 
blonde hair sitting to my left over here, who I made a 
commitment to 4 years ago when I joined in with my partners to 
start this business and tell her I have failed when I promised 
her I wouldn't.
    Mrs. Maloney. Oh, my time has expired. Thank you.
    Chairman Luetkemeyer. The gentlelady's time has expired.
    With that, we go to the gentleman from North Carolina. Mr. 
Pittenger is recognized for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    I do thank each of you, our distinguished panelists, for 
being with us today and your perspective is well-received and 
important for all of us.
    Mr. Oxman, I would like to go to you first. I would like 
you to speak additionally to the tools and technologies the 
payments industry has developed to protect consumer financial 
information?
    Mr. Oxman. Thank you, Congressman, and as you well know, 
having the second largest banking hub in the country in your 
district--
    Mr. Pittenger. Sure, thank you.
    Mr. Oxman. --financial institutions are working with 
technology companies to deploy technologies that protect 
consumers. They have consumer-facing components to them. As the 
FinTech industry we are deploying mobile payment services and 
chip card services and even contactless card services.
    Anybody who has been watching the Olympics has seen that 
tap-to-pay technology--much more secure than any technology we 
have ever deployed in the history of our industry.
    And on the back office side, if you will, on the network 
side, we are deploying encrypting and tokenization services 
that protect consumers' information and guarantee them 100 
percent liability protection against any fraud.
    Mr. Pittenger. All right. Good, thank you. Speak as well 
then to the incentives that the payment industry has, and 
businesses have to prevent fraud?
    Mr. Oxman. Yes. I think that is a very important question 
because in the payment systems, our industry in the first 
instance has liability for fraud as any consumer who has seen a 
fraudulent charge on their credit card statement knows, they 
need only contact their card issuer, their financial 
institution, and report that fraud and they don't have to pay 
for it.
    Well, guess who has to pay for it? We do in the payments 
industry. The incentives could not be more powerful for the 
payments industry to protect against fraud. We have done a good 
job with about $7 trillion in payments processed in the U.S. 
last year. Only about $9 billion of those were fraud so it is a 
fraction of a tenth of a percent.
    But the criminals, they are smart. They are active. And 
every time we deploy a new solution they move on to the next 
criminal activity so we have to remain vigilant. But the 
incentive on us is very powerful as you noted, because we have 
liability for fraud if we don't stamp it out.
    Mr. Pittenger. Yes, sir, thank you.
    I would like to ask each of you since the financial crisis 
many institutions are terminating relationships, as we all 
understand, with consumers or companies deemed high risk, 
complex, or not profitable. Why do you believe we are seeing 
financial institutions terminate these longstanding accounts 
held by certain industries?
    And I would just like you to elaborate further on that, Mr. 
Schneider?
    Mr. Schneider. Well, again, I go back to I think there can 
be just a misunderstanding as to the degree to which regulators 
supervise non-depository money service businesses. Maybe there 
is some notion that they are not looked after, that they are 
this big gaping BSA/AML risk because they are not supervised, 
and that is just not the case.
    And I think our data shows that and if banks begin to 
better understand that, they won't view these companies as 
inherently risky because they know that they are being 
supervised.
    Mr. Pittenger. Well, to that end, what specific actions can 
Congress take to combat the trend in de-risking?
    Mr. Schneider. Well, one thing would be collaboration among 
regulators. Our Federal system is a beautiful one. It provides 
some regulators like State regulators very close to entities 
and Federal oversight at a national level.
    Our ability to work with our Federal partners effectively 
is a great value. Then everyone gets the same message being 
delivered as opposed to mixed messages. So again, I mentioned 
H.R. 3626. We can't communicate as freely as we should with our 
Federal counterparts concerning money service business 
supervision.
    If that avenue was opened up for us I think there would be 
more consistent messaging.
    Mr. Pittenger. Thank you.
    Mr. Baxter, as you discussed your difficulties and 
challenges, have any of the banks that have been closing 
accounts, have they been willing to sit down and discuss with 
you the accounts and why they are being closed?
    Mr. Baxter. Absolutely not. You are sent a letter, two 
pages, approximately two pages with an 800 number on it if you 
have any questions.
    When you call the 800 number the voice on the other end of 
the phone tells you that you received the letter. You reply, 
``Yes, I did.'' They said your account will be closed in the 
timespan in which it stated on the letter.
    When you ask why your account is being closed there is no 
discussion. They have nothing to say other than the enforcement 
of the letter will take place.
    Mr. Pittenger. Mr. Schneider, do you have any more response 
to that?
    Mr. Schneider. Well, at the end of the day, banks do make 
decisions. We would like to encourage our banks to be as open 
and forthright with their customers as they possibly can be, 
and again, to not make broad generalizations about industries 
but to look at individual risks and how they are appropriately 
mitigated.
    Mr. Oxman. And Congressman, if I may, this is why H.R. 2706 
is so important because it sends a very strong legal signal to 
banks that they don't have to shut off what regulators have 
deemed risky industries just because they are on a list of 
risky industries.
    The banks want to serve customers. They want to serve 
merchants. And we need to make sure that they don't cut people 
off just because regulators are putting pressure on them to do 
so.
    Mr. Pittenger. Thank you, very good. My time is expired.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the gentleman from Georgia, the 
distinguished Mr. Scott, who is recognized for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman. As I am sitting here 
listening to this hearing, I am reminded of my favorite 
playwright, William Shakespeare. And he wrote my favorite play, 
Julius Caesar.
    And if you all recall, familiar with Shakespeare, when 
Julius Caesar's walking through the Roman gardens with Brutus 
and Marc Antony, there is this woman that wails, ``Beware the 
Ides of March.''
    Well, I am here to tell you we need to beware of the ides 
of our banking regulators and nowhere--nowhere is this more 
poignant than with our pawnbrokers. Let me give you an example.
    Here are our pawnbrokers who are the main, almost final 
lifeline to the unbanked and underbanked. And because of this 
overregulation, because of this extension through the Bank 
Secrecy Act and money laundering, all of a sudden to de-risk 
they are closing the bank accounts of the very people who are 
there to give lifeline to the most underbanked and unbanked by 
making the institutions in our financial system unbanked and 
underbanked themselves.
    Now, why is this? Can you all tell me why these banks are 
taking away and closing down the banking accounts of businesses 
that have been loyal customers and have had great 
relationships, no problems. Why? And what must we do to stop 
it?
    Mr. Schneider. Speaking as a regulator--
    Mr. Scott. I really want to hear from all of you on this 
because--
    Mr. Schneider. --we--
    Mr. Scott. My Shakespearean moment would be meaningless if 
we do not get to the bottom of this because March is rapidly 
approaching.
    Mr. Schneider. It is very close. Well, we regulate pawn 
dealers in my department, so I have great familiarity with the 
services that they provide. And I just keep coming back to I 
think it is misunderstanding.
    Data will ultimately be our friend. Risk can be--I think we 
as regulators have to make sure we are talking to the 
institutions that we regulate. And when we talk about risk we 
talk about risk as something that you mitigate, something that 
you understand and that you process and that you mitigate.
    And as State regulators, we are trying to give our 
institutions the tools to do that through our BSA/AML self-
assessment tool.
    Mr. Scott. Yes, but the issue--
    Mr. Schneider. That they will understand that and then make 
better decisions.
    Mr. Scott. Yes, the issue is here we are in Congress and 
deal with the power of the people to do something about this 
sort of thing. And we need you all to tell us do we need to 
pass a law to prohibit these banks from just arbitrarily 
closing down an account of a pawnbroker who has been servicing 
these low-income people who have no other choice until they do 
something?
    We have to do something here.
    Mr. Oxman. Yes, Congressman--
    Mr. Scott. What must we do here?
    Mr. Oxman. Yes, I think, Congressman, it is H.R. 2706 
really that needs to continue the march toward the President's 
desk because these banks that you are referring to they don't 
want to shut off customers either.
    But they are being pressured to do so by overzealous 
regulators or they have been historically. Our hope is that the 
regulatory environment will continue, but as you well know, 
having the hub of the payments industry in Georgia--
    Mr. Scott. Right.
    Mr. Oxman. --our industry is desperate to serve those 
merchants that want us as service providers. We don't want to 
shut anybody off, but in many cases regulators are forcing that 
to happen. And that is what we need to have come to an end.
    Mr. Scott. Yes, and as Democratic chairman of the FinTech 
Caucus, you know how vitally I am concerned. And we need to 
prohibit this. We need to send a very loud message to the 
banking community.
    And you all who are banking regulators or State regulators 
need to stop this, put something in place and stop cutting off, 
because then we cut off the banking account, you got nothing.
    Even with me, can you imagine if the bank cut me off as a 
citizen or you? You are out there in no man's land.
    Yes, sir, Mr. Orozco, yes. I think you were next.
    Dr. Orozco. Thank you. I think there is a moral hazard 
between banks and regulators about how to tackle risk. It is 
you can put--they play--they put the blame on banks. The banks 
put the blame on regulators.
    The fact of the matter is that there is a problem, a 
serious problem of transparency and accountability on both 
sides, and that is what needs to be tackled at this point. And 
the instrument exists.
    Mr. Scott. Mr. Baxter, could you--
    Chairman Luetkemeyer. Real quick.
    Mr. Scott. --because the pawn--just real quick, thank you, 
Mr. Chairman, because the pawn shops are not in this by 
themselves. Your money machines are in this same vise, am I 
right?
    Mr. Baxter. Yes, sir.
    Mr. Scott. And what do you think we need to do?
    Mr. Baxter. Well, I do think that there are overzealous 
regulators out there. I do think that there was a misconception 
in business in general as to what businesses need to be 
targeted.
    In our industry, as I said, that we are vetting that is 
done with each and every one that wants to enter into this 
business to own and operate ATM machines. Individual vetting--
    Mr. Scott. Well, thank you.
    Mr. Baxter. --includes background checks, which we do a 
U.S. criminal report, an OFAC report, a Patriot Act search, 
watchlist, driver's license search, bankruptcies, liens, and 
judgments, secretary of State filings, U.S. sex offenders, 
personal credit report, business report. All of this is done 
before--
    Mr. Scott. Thank you.
    Mr. Baxter. --the corporation MicroBilt in my situation and 
my sponsoring bank highly recommended that our corporation use. 
We have--
    Mr. Scott. Thank you.
    Mr. Baxter. --followed that to the tee.
    Mr. Scott. Thank you so much.
    And thank you, Mr. Chairman, for giving that little extra 
minute. And I would like to submit this record from the 
National Pawnbrokers Association to the record.
    Chairman Luetkemeyer. Without objection, and we appreciate 
the gentleman's passion on this issue as well.
    Mr. Scott. Thank you, sir.
    Chairman Luetkemeyer. With that, we go to the gentleman 
from Tennessee, Mr. Kustoff, recognized for 5 minutes.
    Mr. Kustoff. Thank you, Mr. Chairman.
    And I do thank the witnesses for appearing this morning.
    Mr. Oxman, I also appreciate the comments regarding 
Operation Chokepoint as well as the dissertation in your 
written testimony. If I can, as it relates to Operation 
Chokepoint, there is no doubt and you stated that that 
accelerated, if you will, the de-risking of financial 
institutions and forced some consumers out of the financial 
system entirely.
    That could, as it relates to the regulators. Can you state 
was there overreach by Federal regulators as a result of 
Operation Chokepoint? And if the answer is yes, can you give 
examples of that overreach?
    Mr. Oxman. The answer is most definitely yes, Congressman, 
and thank you for the opportunity to highlight that overreach. 
I would give rather than my assessment, I would give the 
assessment of the court system. For example, in Georgia, which 
found that the prior CFPB, prior to the current Administration, 
had overreached so badly under Operation Chokepoint that they 
were sanctioned.
    The CFPB was actually sanctioned for their overreach 
against one of our member companies. The entire case was 
dismissed with sanctions against the CFPB.
    That is but one of many examples of overreach by Federal 
regulatory agencies that made Operation Chokepoint such a 
danger to, frankly, our economy because it does, as you have 
heard so much about today, cause financial institutions to 
effectively shut off their own customers because of concern of 
that regulator overreach.
    We hope to never see that again, but sadly there are 
numerous examples across many agencies from the prior 
Administration.
    Mr. Kustoff. Thank you, Mr. Oxman.
    Mr. Schneider, from your vantage point in your State, can 
you testify as to whether there was overreach by Federal 
regulators as a result of Operation Chokepoint and the impact 
that that had in your State?
    Mr. Schneider. Yes, I think there was. The fact is Federal 
regulators see largely the perspective from just the banking 
side of it is different than ours at the State level where we 
see banks and non-depositories, and we get insights into all of 
them.
    And we did see people doing legitimate businesses losing 
their accounts in Illinois. And then that is pushing business 
into the cash economy, which seems to us to be one of the most 
unsafe ways to conduct business, having people haul bags and 
boxes of cash around.
    I do think there was some overreach. It led to bad business 
decisions who were making decisions based on what they 
perceived as regulatory requirements rather than good, sound 
business practices and risk mitigation strategies. And 
arresting the attention of the Federal regulators through 2706 
and other efforts on your behalf could help the situation.
    Mr. Kustoff. And when these customers no longer have access 
to the financial products, to the institutions, where do they 
ultimately go and what do they ultimately do?
    Mr. Schneider. Well, to some extent, it is a question you 
hate to even think about because they won't have choices. There 
are areas in my State that critically rely on non-depository 
financial services providers. They need accounts to operate.
    And we would be talking about people going into areas we 
don't want them to go into such as loan sharks and things like 
that. We don't want that happening. We want people to have 
access to a variety of financial services.
    Mr. Kustoff. Thank you.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman Luetkemeyer. The gentleman yields back.
    Now we go to the gentleman from Minnesota. Mr. Ellison is 
recognized for 5 minutes.
    Mr. Ellison. I thank the Chairman and the Ranking Member 
for the time.
    Let me just make an editorial comment. Operation Chokepoint 
started in 2013. It has now been officially ended. That is 
important for the record.
    Also, too, I do resist the idea that there was some 
nefarious political motive. I think that you had people who 
were trying to stop fraud and they did it, in my opinion, the 
wrong way.
    And just like putting an extra burden on all the businesses 
that you all represent I think in many ways had the opposite 
effect that was intended.
    I think Mr. Schneider you might have hit the nail on the 
head where it is, look, if you shut down all these businesses 
this way, it is not like people will not do business, they will 
do it. But maybe you will go into a cash economy.
    It is actually legal to get a suitcase full of cash and 
carry it from Minnesota to Mogadishu. It is not illegal. You 
have to declare it and there are other protocols, but it is 
among the most dangerous ways to transmit that money. And you 
for sure don't know who is going to end up getting that money 
then.
    The fact that we have said we are going to do all these 
things to cut off access, it has had the opposite effect, which 
is why I think we ought to have hearings on how to properly de-
risk. Get people like you to tell us how we should write the 
legislation rather than just somebody over at DOJ write up 
something that they think would be good and then we end up 
where we are now.
    With that, I seek unanimous consent to introduce letters 
from the Charity & Security Network regarding their problems 
with the way we are doing business here. The Global Center on 
Cooperative Security, they have a statement to this committee 
on examining de-risking and its effect on access to financial 
services.
    And then also Mr. John Byrne, he submitted something on 
examining de-risking and its effect on services. And I do ask 
that these documents be allowed to be entered into the record. 
These groups are on the front line of the effort to combat de-
risking, and I am pleased that they have taken time to share 
their view with the committee.
    Chairman Luetkemeyer. Without objection.
    Mr. Ellison. So question, sudden and unexplained account 
closures are creating serious problems for international 
charities and the people that they serve.
    For example, on January 29th of this year, Western Union 
sent a U.S.-based international humanitarian organization a 
letter closing its account immediately without any explanation 
for the reasons for this drastic action or given the charity an 
opportunity to even address the concerns. Going to your point, 
Mr. Baxter, where is the due process?
    When this happens, charities often have extreme 
difficulties continuing their lifesaving work and those that 
they need. And research shows that nearly 18 percent of U.S. 
charities operating internationally are having problems opening 
or maintaining bank accounts. I think this is a bad thing, and 
I want to know what you think we should do about it?
    Mr. Oxman. Well, Congressman, I think this is an example of 
why, as you stated eloquently, the philosophy behind Operation 
Chokepoint was wrong. The target of Operation Chokepoint was us 
as payments providers, financial institutions. It is akin to a 
bank robbery being planned over a cellphone call and law 
enforcement going after AT&T for that.
    What we would like to see, as you noted, is law enforcement 
regulators pursue the actual fraudsters instead of seeing the 
service providers that provide millions of Americans, 
merchants, consumers, charities, nonprofits, access to payment 
systems. They shouldn't be targeted. The actual fraudsters 
should be targeted.
    What you have seen as a result of the regulatory overreach 
of recent years is, and you have heard a lot about it today, 
financial institutions say you know what?
    It is not worth the risk of regulators coming after me for 
serving a disfavored industry, a charity that operates 
overseas. I will just shut them all off then I don't have to 
worry about anybody coming to see me and causing any problems. 
And that is exactly the wrong approach, as you noted.
    What we think is better and we think H.R. 2706 does this 
right, is tell regulators, tell law enforcement at the Federal 
level in particular pursue the fraudsters directly. Don't 
pursue the service providers and tell them to shut off entire 
categories. That is the wrong approach.
    Mr. Ellison. Quick question with my limited remaining time, 
do we ever get all these agencies together to just talk about 
the effect of them being--they are trying to de-risk. It seems 
to me the agencies are trying to say if any bad money gets 
through we don't want to be blamed for it, so we are just going 
to shut it all down.
    Is there a need for greater coordination? What do you all 
think in my time that I don't have anymore?
    Mr. Schneider. Well, I would just say briefly, sir, your 
piece of legislation, the Remittance Improvement Act is a 
helpful step.
    Mr. Ellison. Thanks.
    Mr. Schneider. Again, we are there as State regulators 
doing this. We will talk to our Federal counterparts any day of 
the week for them to better understand what we are doing so 
that they better understand the real risk and can focus their 
exams.
    Mr. Ellison. Let me thank everybody and the Ranking Member. 
Sorry for going--and the Chair for going over.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the gentleman from Georgia, Mr. 
Loudermilk is recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman, and thank you for 
this hearing. It is no secret I have been a long critic of 
overregulation by the Government to try to fix every problem 
that exists in the world, and quite often that causes more 
problems than it fixes. And I think that is one of the things 
we are looking at here today.
    I perceive our responsibility in Congress here is to 
represent the people, the interests of the people. And I also 
understand that it is the businesses out there that employ 
those people and provide the services that people need.
    And as spending 20 years as a small business owner, I have 
lived through what some regulations, such as Operation 
Chokepoint has done in the community. In fact, I have an 
advisory council that is made up of businesses from small 
businesses, mom-and-pop shops up to the executive managers of 
large businesses in our district.
    And I recently asked them at one of our meetings, and there 
was probably about 100 in attendance, said if we could do one 
thing for business and this was about 2 years ago, one thing 
for business would you rather us cut taxes or work on reducing 
regulation? Almost every one of them said reduce regulation.
    And when I followed up I was a little surprised by it and 
they said, yes, lowering taxes helps us as a business, our 
bottom line, but the regulation hurts our ability to serve the 
customer. And I guess that is what we are looking at.
    And in fact, Mr. Baxter, my youngest son worked in the ATM 
industry as security. He was in the Army as Airborne and so 
they brought him on. He was also a private investigator. He was 
brought on to be additional security for the business because 
of exactly what you are talking about. They were forced to 
carry around a lot of cash.
    And so that was his initial job. He has moved on to do more 
technical things at this point, but Mr. Baxter, the sheer 
volume of regulations, is that the main cause of the de-
risking? Or is it a particular area of compliance like the BSA 
or anti-money laundering?
    Mr. Baxter. I was asked about money laundering just 
yesterday as a matter of fact, Congressman. And I was asked can 
it be done with an ATM? And I said I don't know. I am not a 
money launderer. I am not a thief. I don't think like that. I 
have never considered it.
    I don't know anyone in business that I have worked with in 
this industry that does. It is just not discussed. I would not 
know how to do that.
    Mr. Loudermilk. Yes.
    Mr. Baxter. Yes, overregulation of our industry is what has 
brought us to where we are today with bank closures. And I 
agree with the gentleman that spoke earlier who said that, are 
any of these departments talking with one another?
    And I am not absolutely certain they are because I think if 
they were there would be a lot more understanding of this 
business, my business, and various other businesses that 
provide cash and services to people throughout the country.
    And so I think that is where the disconnect is at is that a 
certain group of people have gotten together and decided that 
they know what is best for everyone, but the reality of that is 
just the opposite in terms of small business and what is 
created by overregulating.
    Mr. Loudermilk. Yes. I am afraid that often or at least in 
the case of Operation Chokepoint what we see is somebody not 
liking what is a legal business and taking it is our job to 
determine what is legal and not legal in this Nation. And 
somebody using regulation to make a moral decision to hurt an 
industry. And we have to avoid that.
    Mr. Oxman, I appreciate all of ETA's engagement and as well 
as the American transaction processors. You and organizations 
like both of yours engaging in this because you are the boots 
on the ground working with those individual business owners who 
really don't have the time to come up here and testify.
    While we have you, when the fear of overregulation causes a 
financial institution, like we have been talking about here, to 
terminate a relationship with a FinTech company, isn't it 
harder for the Government to go after the bad actors because 
the business is now using cash?
    Mr. Oxman. Yes, that is the irony of this, Congressman, and 
as you know, the great payment processors headquartered in and 
around Atlanta--
    Mr. Loudermilk. Right.
    Mr. Oxman. --in the suburbs struggle with this issue every 
day to prevent fraud from happening. But they are able to 
prevent fraud from happening because they are on the payment 
systems. Once you kick them off the payment systems, and as we 
have talked about, they find alternative ways, that we may not 
be able to see, to provide service, it is a lot harder to 
prevent that fraud from happening.
    That is the ultimate irony of Operation Chokepoint. You are 
kicking people off of the very systems that are designed to 
prevent that fraud from happening.
    Mr. Loudermilk. In my last 1 second, we basically, under 
the guise of trying to protect the consumer, are harming the 
consumer.
    Mr. Oxman. That is right.
    Mr. Loudermilk. I yield back, Mr. Chairman.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we will go to the gentleman from Texas, Mr. 
Green is recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. Thank the Ranking 
Member as well and the witnesses for appearing.
    I would like to talk for just a moment about some of the 
issues associated with the international charities and the 
difficulties they are having. Some of them are difficulties 
opening accounts and a good many others are having difficulties 
with their remittances.
    I have some intelligence before me that indicates that two-
thirds of the U.S.-based international NPOs, NPOs are non-
profit organizations, that they are reporting experiencing 
difficulties with the banking system, such as refusal to open 
accounts, 10 percent, and account closures, 6 percent.
    Indicates also that 37 percent of U.S.-based international 
NPOs reported delays in international wire transfers. Can 
someone give me some intelligence on why this is occurring?
    Dr. Orozco. Maybe I can. There has been a presumption of 
risk in cross-border money transfers by the nature of the 
transaction itself, but not by the fact that a cross-border 
money transfer represents a financial risk.
    Even prior to Chokepoint, the many money transfer operators 
or money service businesses have suffered account closures at 
differing instances. As their accounts are closed they face 
more difficulty in providing services to customers.
    But the pattern is that there is no correlation between 
money transfers, remittances, family remittances, and financial 
risk, whether it is from money laundering related to drug 
trafficking or financial terrorist activities or even other 
forms of money laundering. However, the practice, the 
systematic practice has existed and has prevailed.
    There are money transfer companies that sometimes are 
currently operating only on two bank accounts, for example, to 
send more than 200,000 transactions a month from customers 
through other customers. And they do have a real challenge on 
how to provide the services.
    The main effect, in fact, is that it limits innovation. 
Currently, the extent of competition is being set back in the 
money transfer business because the regulatory environment is 
not allowing them to innovate investor resources in innovation 
because they have to put their money into complying to 
different regulatory contexts and the pressure from banks to 
keep their accounts open.
    Mr. Green. Would someone else care to comment?
    Mr. Oxman. Congressman, I think this is a terrible example 
of how Operation Chokepoint harms the very people that we are 
trying to help. Charitable giving is at the heart of who we are 
as a people in this country.
    We are lucky that great international charitable 
organizations choose to set up business here in the United 
States. But if we deny them access to the payment systems, and 
the ability to send charitable dollars overseas, they are going 
to leave the country.
    Or, as we talked about earlier, they are going to find 
other ways to operate that take them outside of our payment 
systems and outside of the purview of regulators that are 
ensuring that they are doing good by doing good.
    I think you have highlighted something that is an untoward 
and unfortunate consequence of Operation Chokepoint, the kind 
of de-risking that we really need to prevent from happening in 
order to allow charitable organizations and really all 
legitimate operators in business in this country to access 
financial services to be able to do good work and benefit our 
economy.
    Mr. Green. I had at least one constituent, and I will come 
to you. I just want to make this comment if I may? One 
constituent who believes that religious affiliation has 
something to do with the reception you will receive when you 
attempt to move into banking. Does anybody have a comment on 
that as you are making your additional comments? Religious 
affiliation? Yes, sir?
    Mr. Schneider. I have not heard directly that expressed, 
but that certainly would be troubling if that were becoming a 
category of concern in and of itself, for someone to not 
provide banking services on that basis.
    I was just going to note, I think sometimes our one pathway 
forward is data. How do we understand what is going on in this 
industry? And there is a lot of conjecture, a lot of 
supposition, but, we have data at the Conference of State Bank 
Supervisors, our Money Service Business Call Report tracks 
exactly how much money is being transmitted domestic to foreign 
countries.
    In fact, when filing is ended at the end of today we will 
be able to tell you the country of destination for all of that 
money. It doesn't in and of itself solve the problem that your 
constituents are experiencing on a day-to-day basis, but it 
provides a basis for being thoughtful about this rather than 
just operating from conjecture and speculation.
    Mr. Green. Mr. Chairman, would you allow one additional 
question?
    Chairman Luetkemeyer. Yes, sir.
    Mr. Green. Thank you. Can someone give me an indication as 
to how these limitations that are being imposed will impact the 
cryptocurrency in terms of persons concluding that maybe there 
is a better way to do this, an easier way to do it? If you 
would, please?
    Mr. Oxman. Yes, Congressman, that is certainly a question 
for those who are de-risked and removed from access to 
traditional financial services. Cryptocurrency is certainly an 
option for them.
    That is not necessarily a bad thing. There are some markets 
for whom cryptocurrency is highly appropriate and there are 
plenty of legitimate and legal uses for cryptocurrency out 
there.
    However, what I would suggest is that if the goal of 
regulators and law enforcement is to be able to look out for 
fraud and look out for bad actors, we are all better off if 
they are in the traditional financial system and not de-risked 
out of it.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that we go to another gentleman from Texas, Mr. 
Williams, recognized for 5 minutes.
    Mr. Williams. Thank you, Mr. Chairman. And I would like to 
say risk management is a critical function for any business or 
financial institution in this country. And assessing risk can 
become even more challenging if financial regulators institute 
practices that are unpredictable and carry compliance measures 
that are costly or misguided.
    The practice of de-risking has damaging effects on Main 
Street America and causes financial institutions to terminate 
long-lasting business relationships if they might be deemed 
high risk.
    Operation Chokepoint is one of the many examples of 
Executive overreach from the previous Administration. And while 
this Administration is taking deliberate action to curb efforts 
like the Operation Chokepoint, we must remain vigilant for 
similar efforts in the future.
    And in full disclosure I am a car dealer and I have been on 
the receiving end of Operation Chokepoint. I know what it does.
    Mr. Secretary, I know you and I consider Mr. Cooper a dear 
friend, so tell him hi. Thank you for being here. I would like 
to ask a question to you.
    I introduced, as you know, H.R. 3626, the Bank Service 
Company Examination Coordination Act, and this bill will 
enhance State and Federal regulators' ability to coordinate 
examinations and share information on banks' technology vendors 
in an effective and efficient manner.
    My question would be can you explain how authorizing State 
regulators to examine third-party technology service providers 
is beneficial and how that could avoid duplicate examinations 
and reduce regulatory burden?
    Mr. Schneider. Yes, thank you very much, sir. I will give 
Mr. Cooper your best the next time I see him, which will be in 
a couple of weeks. Your bill, we applaud you for introducing 
it. It is critically important to making the financial services 
regulation system more efficient.
    As I mentioned throughout one of my themes is we are out 
there every day as State regulators doing this work, examining 
these third party services providers, many of which are money 
service businesses and new FinTech innovators.
    And for us not to be able to communicate freely with our 
Federal counterparts for them to know what we are doing and for 
us to know what they are doing, just results in more 
examinations, more work, more regulatory burden that seems 
unnecessary because it is just duplicative at that point in 
time.
    The simple change that your bill, the simple, commonsense 
change that your bill would provide could greatly impact a 
reduction in regulatory burden.
    Mr. Williams. OK. And I have another question for you, Mr. 
Secretary. Your testimony references Vision 2020, a series of 
initiatives to modernize State regulation on banks. I would ask 
you, can you briefly describe this initiative and how it will 
address re- or de-risking and what components of Vision 2020 
might be applied to make Federal supervision even more 
efficient?
    Mr. Schneider. Well, one of our pillars is coordinating 
better with our Federal counterparts. We are listening to our 
non-bank FinTech companies that we regulate more closely 
through an advisory panel that will tell us what their pressure 
points are so we can better respond.
    One of our pillars is to harmonize State laws as much as 
possible so that FinTech innovators know the rules of the road, 
know what to expect from a State regulator, know what to expect 
from a State exam.
    How we work together as State examiners is another focus of 
our Vision 2020 initiative. And quite frankly, making sure that 
the banking system is available to all of these new companies 
is another pillar of our Vision 2020.
    And to that extent, we have to start having honest 
conversations with our bank, with the banks that we supervise. 
Again, we touch 78 percent of every bank in America. Making 
sure that they understand what they need to do, they have an 
obligation to mitigate their risk. We have given them tools to 
better understand that.
    And to understand that at least from the perspective of 
State regulators there are no taboo categories. You are 
entitled to bank any lawful business that you want to bank. 
Understand the risk of doing that, use the tools that we have 
given you, and hopefully that is a pathway that the State 
regulators can use to attack this de-risking phenomenon.
    Mr. Williams. Thank you for that testimony. My last 
question will be to you, Mr. Oxman. Operation Chokepoint may be 
one of the most abusive Government overreaches in our Nation's 
history. As a business owner myself for almost 50 years, it is 
unconscionable that a Federal agency could so recklessly affect 
the livelihoods of so many law-abiding citizens and businesses.
    How do we prevent future overreach from the Executive 
Branch? And should the roles of the agency and of Congress be 
in that prevention?
    Mr. Oxman. I think, Congressman, you are absolutely right 
in characterizing this overreach as harmful to our economy. It 
is harmful to American business. And our concern going forward 
is we saw Operation Chokepoint come up during the prior 
Administration, but as you noted, there is a risk going forward 
next year, 5 years from now, 10 years from now, that agencies 
will start this back up again.
    I think the proper role of Congress is to pass legislation 
like we have talked about today, H.R. 2706. Make sure Federal 
agencies, Federal law enforcement understand that Operation 
Chokepoint is not the law of the land and they are not to act 
as policymakers.
    It is Congress' decision which merchant activities are 
legal and which aren't. And regulators and law enforcement 
should not be using Operation Chokepoint as a policymaking 
activity. It is wrong, and Congress needs to stop it.
    Mr. Williams. Thank you for your testimony.
    Chairman Luetkemeyer. The gentleman's time has expired.
    With that, we go to the gentleman from Florida. Mr. Ross is 
recognized for 5 minutes.
    Mr. Ross. Thank you, Chairman, and I appreciate this 
hearing. I think the Operation Chokepoint has to be one of the 
most self-serving, corrupt abuses of power that this country 
has ever exercised. And unfortunately the small businesses, the 
mom-and-pops have been impacted by it. It sets a very bad 
precedent.
    Mr. Oxman, I am hopeful that we don't see it again and that 
we do pass legislation to make sure it never happens again.
    Mr. Baxter, your particular industry is unique. As the rest 
of the world seems to want to go cashless, you supply a much-
needed basis, cash, to markets where it is hard to find cash. 
You have your ATMs throughout rural areas.
    Could you describe what has been your experience in dealing 
with banks in areas where you have consumer bases that 
desperately need your services?
    Mr. Baxter. It is of recent, of the past year, it has not 
been good at all, as--
    Mr. Ross. You have had technological advances that you have 
had to keep pace with, which you have been able to do. And yet 
you serve a market need that nobody else will service.
    Mr. Baxter. Correct.
    Mr. Ross. And for some reason you have banks that now won't 
allow you, a legitimate ATM provider, to be able to have bank 
accounts. It--what--why?
    Mr. Baxter. I wish I could answer the why because we have 
received the letters and we have asked why, but we have 
received no response. What it has done to us is this. It has 
forced us to go to other alternative banks, which has created 
greater risk, a greater risk for us.
    And here is the greater risk. The greater risk is what used 
to be, for example, with Wells Fargo, as one example. Many 
branches throughout the country, even some closer to some of 
the rural areas that we service, so rather than having to go 
pick up 2-days' worth of cash and haul it around in a vehicle 
and the danger in doing that--
    Mr. Ross. Right.
    Mr. Baxter. --we could pick up a half-a-day's worth of cash 
and then go to another branch and pick up another half-day's 
worth of cash to get that cash out but yet keep ourselves safe 
and everyone else around us safe.
    Those are the problems that we now face. We are now having 
to pick up cash in larger amounts and carry larger amounts.
    Mr. Ross. And they are all hiding. I guess they are hiding 
their reasons. The regulators are hiding their reasons on the 
basis of anti-money laundering statutes. Now, you have been in 
this business for quite some time.
    Mr. Baxter. Yes, sir.
    Mr. Ross. You have made a career off of it. You have 
employed a lot of people off of it, and more importantly you 
have catered to a market that desperately needs your services 
out there that most banks and other financial institutions just 
won't service for cost purposes alone.
    Are you aware of any instances of violations of the anti-
money laundering laws dealing with the independent ATM owners?
    Mr. Baxter. I absolutely am not.
    Mr. Ross. And so that excuse in and of itself it just 
doesn't shed light. What else could it be? Do you have 
protocols in place to make sure that you don't have money 
laundering operations going on?
    Mr. Baxter. Correct.
    Mr. Ross. And have you shared these with bank regulators?
    Mr. Baxter. We have not had the opportunity.
    Mr. Ross. Because they won't allow it, will they?
    Mr. Baxter. That is exactly why the National ATM Council 
would like to ask the OCC and banks and regulators to join with 
us in a group conversation. Let us share with you what we do 
and you share with us what are your concerns.
    Our books are open. You can examine us and we are auditable 
from top to bottom.
    Mr. Ross. Yes, clearly. But more importantly, you are more 
than willing to work with the regulators to make sure that you 
are not only in compliance with the laws, but that you also 
have access to bank services so that your consumers, your 
customers that desperately need your services, can do so at an 
affordable price and an accessible opportunity.
    Mr. Baxter. Correct.
    Mr. Ross. Mr. Schneider, I am one of the strongest 
proponents of State regulations. I am a strong proponent of our 
insurance regulation system and of course our State banking 
system.
    You have developed a tool called the Bank Secrecy Act Self-
Assessment Tool for money services businesses. Can you describe 
real briefly how it is helping with de-risking?
    Mr. Schneider. Well, our thought is that--and again, it is 
a tool not just a rule.
    Mr. Ross. Right.
    Mr. Schneider. It is a tool that banks and non-banks can 
use to understand their own individual BSA/AML risk. And once 
you understand your own risk profile then you can take the 
appropriate steps to mitigate it. And that is how we think 
businesses should handle their risk--
    Mr. Ross. And I think you--
    Mr. Schneider. --and not rely on broad categories.
    Mr. Ross. Our Federal regulators aren't subscribing to that 
particular model, are they?
    Mr. Schneider. This is something that we take pride in 
developing at the State level. And hopefully our Federal 
regulators will recognize it for its value.
    Mr. Ross. And have a chance to replicate it?
    Mr. Schneider. Yes.
    Mr. Ross. Thank you.
    I yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    Now we go to the gentleman from Colorado, Mr. Tipton. He is 
recognized for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman. Thank the panel for 
taking the time to be able to be here. We have had some 
conversation in terms of access actually to banking, access to 
capital issues.
    And Mr. Oxman, I come from a rural part of Colorado, the 
area that I represent. And a number of our folks now are 
starting to participate in the electronic payments industry and 
rural people. They have sometimes been seen as underserved and 
because of the physical distance basically, that they have from 
a natural brick-and-mortar institution.
    Can you briefly touch upon how de-risking will threaten 
access to choices for rural customers and whether or not de-
risking has been detrimental to their financial opportunities?
    Mr. Oxman. Thank you, Congressman. It is an exciting time 
in our industry, and FinTech products and services are really 
opening up access opportunities for those, particularly in 
rural areas like Colorado.
    These are people, as you noted, who don't necessarily have 
access to a bank branch. They don't necessarily have access to 
as many retail options as they might like, but they all have 
smartphones. And they can use those devices which are safe, 
secure, and reliable and other FinTech products and services to 
access electronic payment systems.
    E-commerce is a great opportunity for them, for example. It 
doesn't matter if you are in a rural area or in an urban area. 
With e-commerce you can reach the whole world and sell your 
products and services that way.
    And those are the type of FinTech innovations that ETA 
members are deploying every day. And the problem with de-
risking is it says regulators are going to be paying close 
attention to FinTech products and services.
    You might want to consider not deploying them or not 
offering them because, well, maybe Operation Chokepoint-type 
regulatory environment prevents that type of innovation from 
happening. That is what we don't want to see.
    What we want to see is these new FinTech products and 
services bringing more merchants, bringing more consumers onto 
electronic payments rather than fewer. And that creates exactly 
the kind of opportunity that you are talking about, and that is 
what is most exciting about the opportunity of FinTech and 
regulation law enforcement activities like Operation Chokepoint 
prevent that from happening.
    Mr. Tipton. Great, thank you. I appreciate that.
    Mr. Schneider, I want to be able to visit with you a little 
bit and follow up on some of the comments that you had made in 
your testimony. About what happens to the demand for money 
service businesses if these businesses are denied access to 
capital and the banking services.
    Where do these customers actually turn to if they are 
denied that access to the financial system because of the 
effects of de-risking?
    Mr. Schneider. I think that is one that has been touched on 
before. It is one of the ironies. We will lose visibility into 
where they are going because they are going to be going into 
this pure, unregulated cash system where we have no oversight 
into what they are doing.
    In some cases, of course, they are going to be deprived of 
any service because everyone has been run out of the 
communities in which they are living. And we just view that as 
the worst possible outcome, particularly if it is the product 
of non-thoughtful risk mitigation strategies.
    If it is just you think you can't bank these customers 
because they are inherently risky, we are going to lose track 
of what they are doing, and in many cases they just won't be 
served.
    Mr. Tipton. That is an interesting paradox, isn't it, that 
we are saying we want to be able to have the regulatory ability 
to be able to track dollars, to be able to make sure that 
things are safe. But at the same time we are driving people 
into those gray market areas. What is the safety level of the 
people who do move into that?
    Mr. Schneider. Yes, that is a great risk. Again, when you 
are moving vast quantities of cash around just the physical 
safety of the people that are doing that and the customers that 
are receiving that service is of great concern to us as State 
regulators.
    Mr. Tipton. If you have some ideas maybe you would like to 
be able to share them, what further things can Congress do to 
be able to address de-risking?
    Mr. Schneider. Well, I do think again, getting the 
attention of our Federal counterparts that they need to be more 
individual. They need to make sure that institutions evaluate 
their risk, their reputation risk, their BSA/AML risk. That 
they pay close attention to individual risk and not these broad 
categories of risk.
    And that, quite frankly, they learn to better understand 
what us as State regulators are doing with respect to making 
sure these businesses, these non-depository institutions are 
meeting their BSA/AML obligations. And perhaps that can give 
them some comfort to not be quite so reactionary to certain 
types of business categories.
    Mr. Tipton. Great, and appreciate your--did anyone else 
want to weigh on that?
    Dr. Orozco. I think to answer your question, they need to 
tell Mr. Baxter why they are closing his account, not just give 
you an 800 number and leave it there.
    The problem is that there is no transparency and 
accountability in the process. And as long as you don't have 
that process in place, simply giving the right rebuttal to a 
money service business to provide evidence that they are doing 
actually right, they are actually preventing risk, the problem 
will continue.
    And there is a serious problem. There are consequences 
happening across not just in the United States but it is a 
global pattern where businesses are actually suffering 
dramatically and people are being affected by it.
    Mr. Tipton. Right. And unfortunately part of the problem 
has been caused by the regulators. With that, Mr. Chairman, I 
yield back.
    Chairman Luetkemeyer. The gentleman yields back.
    With that, we go to the gentleman from Kentucky, Mr. Barr, 
recognized for 5 minutes.
    Mr. Barr. Well, thank you, Mr. Chairman. And first and 
foremost, let me just applaud you and commend you for your 
consistent focus and attention to the issue of de-risking and 
Operation Chokepoint. As long as I have been on this committee 
you have been laser-focused on addressing this problem.
    And it is a problem and it affects Kentucky. Legitimate 
businesses losing access to financial services and banking 
services and that is a real problem.
    I would like to start with Mr. Schneider. I appreciate your 
commonsense, measured, thoughtful approach to this issue. We 
have a regulator in Kentucky, Charles Vice, Commissioner Vice, 
who has a similar thoughtful approach to this issue.
    And for both of you and other State regulators, my question 
is, how effectively are you coordinating or not coordinating, 
as the case may be, with Federal regulators? How significant is 
the gap in the approach to this issue?
    Mr. Schneider. Well, thank you very much. I will also see 
Mr. Vice in a couple of weeks, so I will give him your best. I 
think we as State regulators are doing an increasingly better 
job of working together. For the big MSBs last year alone we 
did 63 joint exams. That is reducing the regulatory burden for 
them.
    The more we as States work together and come in and do 
something once as opposed to doing it 50 times, the less 
burdensome it is for the companies that we regulate.
    Generally speaking we do have good relationships. We work 
as cooperatively as we can with our Federal partners. But there 
are some gaps.
    And again, I don't mean to keep harping on H.R. 3626, but 
that small change that would allow us on these new types of 
innovative companies to be able to share exam findings, 
participate in joint exams with Federal regulators, as 
seemingly simple as that is, would not only reduce regulatory 
burden, but I think make our Federal counterparts more aware of 
what we are doing so that they don't have to think they need to 
do it again because they don't know what we are doing in the 
first place.
    Mr. Barr. Well, speaking of these innovative companies and 
FinTech from a regulator's point of view and also Mr. Oxman 
from your industry's point of view, can you all give us some 
concrete examples of some FinTech companies, some innovative 
entrepreneurial companies that are helping combat fraud?
    And without identifying particular companies just what are 
some of the ways in which FinTech companies are helping combat 
fraud or money laundering or other kinds of nefarious 
activities?
    Mr. Schneider. Well, I can just start by saying as part of 
the licensing process for our money service business companies, 
having a good BSA/AML compliance plan is required. That is a 
required checkpoint to even get licensed by one of our States.
    We see them being very thoughtful. They don't just approach 
this--I don't think any of them necessarily contend they have a 
magic bullet or a secret sauce. It is just a good understanding 
of the regulations, working with their State regulator to make 
sure we agree that their plan works and then going forward and 
providing services.
    Mr. Oxman. And I think in the FinTech space, Congressman, 
one of the most interesting areas is this so-called peer-to-
peer services where consumers are sending money back and forth 
to each other electronically.
    Some of the biggest names in technology are deploying peer-
to-peer services. And they are deploying them with those built-
in BSA/AML-type protections that you as the committee of 
jurisdiction want to see them deploying.
    They are new-fangled services. They use smartphones instead 
of the checks that we used to write to each other. But they are 
offering those protections.
    And as we have been talking about today, we should look for 
more opportunities to bring consumers, bring merchants onto 
these electronic payment systems because it is a lot easier to 
provide those fraud protections in the electronic world than it 
is in the offline world.
    Mr. Barr. And for regulators that don't have this open mind 
about innovation and get a little bit overzealous with respect 
to de-risking, there is an opportunity to actually undermine 
the safety of the financial system. Is that fair to say?
    Mr. Oxman. That is absolutely true. That is the worst part 
of Operation Chokepoint is it has that perverse effect of 
kicking people off of the very systems that are deploying these 
kind of fraud prevention tools and preventing that fraud 
analysis from taking place.
    We are seeing some good signs, for example, the OCC has 
this FinTech charter idea that we support that will help, 
again, bring these new FinTech players onto the financial 
system so we can deploy these fraud algorithms and prevent 
fraud from taking place.
    Illinois and seven other State commissions have joined 
together on a joint effort to streamline the money transmitter 
evaluation process for licensing. That is a great move by some 
very forward-thinking regulators, again, designed to help bring 
these FinTech companies into the financial system onto 
electronic payment systems so we can prevent the kind of fraud 
that we want.
    Mr. Schneider. Sir, there is a lot of talk about the 
FinTech charter I know, and probably subject of many more 
hearings, separate hearings. The only thing I would like to 
caution there is, help people keep in mind, is creating another 
big Federal bureaucracy as a chartering authority the direction 
we want to go here?
    States are already doing this work. We have a proven track 
record of keeping consumers safe, proven track record of 
supporting innovation. And I am not sure it makes a lot of 
sense to create a new Federal bureaucracy which could cause the 
problems that the current one seems to have created.
    Mr. Barr. Thank you. My time has expired.
    Chairman Luetkemeyer. The gentleman's time has expired and 
we are out of witnesses. But I do have a couple of follow-up 
comments and questions here for the record.
    In a question Mr. Rothfus indicated that pawnbrokers were 
included on the FDIC high-risk list. Let the hearing record 
reflect that the pawnbrokers were not included on that list.
    With regards to a comment Mr. Ellison made, I would like to 
clarify that he said something to the effect that he didn't see 
any coordination or any personal inclinations of the DOJ and 
FDIC folks with regards to Operation Chokepoint.
    And I would just point out that there are oversight 
committee reports on both the FDIC and DOJ showing personal 
motives with documented emails between the individuals in those 
agencies that there were personal motives and there were 
personal actions taken as a result of that.
    Mr. Oxman, I really enjoyed your one comment where you 
said, ``The risk is based on the industry or business and not 
the products sold.'' I thought that was spot on, and I 
appreciate that.
    I am going to use that. I am going to swipe that from you 
to use in front of some of my other discussions sometimes. Mr. 
Barr hit on a little bit of it here and I wanted to follow up a 
little bit.
    And you made the comment a minute ago that there are the 
FinTech folks and the EFT folks, electronic transfer folks, are 
working on different products and better ways to protect 
information and money transfers.
    These technologies are going to have--they are going to be 
implemented, and they are going to ask the retailers to 
participate, whether it is biometrics or whatever else is out 
there, so whenever a credit card, debit card, or whatever type 
of payment is used.
    And in order to do this they are going to have to change 
the way they do business as well. Is that right?
    Mr. Oxman. That is absolutely right, Mr. Chairman.
    Chairman Luetkemeyer. My question I guess is because we had 
another hearing yesterday with regards to the liability 
situation with regards to how this is all taking place between 
the retailers, third parties, banks, what have you.
    And seems to fit right in there with regards to as you 
technologically continue to advance and these things are 
basically forced onto the businesses, they are going to have to 
change the way they do business as well. Is that correct?
    Mr. Oxman. That is absolutely right, Mr. Chairman, and it 
does go back to that principle that our industry is in the 
first instance under both Federal law and card network rules. 
We are responsible financially for fraud.
    Consumers have a 100 percent liability protection against 
fraudulent activity on their credit cards. We have a powerful 
incentive to deploy exactly the type of new technology tools 
that you are talking about, whether it is biometrics like the 
fingerprint or face ID. We are moving away from old types of 
validation, authentication like the signature, which we are 
getting out of the system.
    These new technology tools are exactly what the private 
sector should be deploying. We want to deploy them and we are 
well-positioned to protect against fraud with them.
    Chairman Luetkemeyer. Mr. Schneider, you made a couple of 
great comments with regards to the environment and how it needs 
to be changed. You, as someone who is a head of a regulatory 
agency I entered this discussion, quite frankly, with the top 
regulators. And I have told them they have a culture within 
their agency that has to be changed.
    Here we have Operation Chokepoint that has been discussed, 
and it has morphed into something more than just the list of 
what was on the FDIC.
    Now, it takes into account ATM machines, electronic 
transfer folks, and it is ironic because here we are talking 
about shutting down systems that provide cash, the ability of 
people to get cash from their accounts, as well as being able 
to transfer money electronically out of their accounts, now how 
are they supposed to access their accounts?
    How are they supposed to access their accounts if they 
can't get cash or they can't get their money transferred? What 
is left? I am at a loss.
    Mr. Schneider. I think that just highlights this great 
irony that an overzealous regulation can actually have the 
exact opposite effect as pushing people into areas where we 
have no visibility into what they are doing and less 
compliance.
    Chairman Luetkemeyer. How do you change the culture at the 
agency? We have a bill to stop Operation Chokepoint. We have 
had hearings here to try and expose this. We are trying to work 
with the different regulators.
    And I don't want to put words in your mouth here, but it 
would seem to me they wouldn't need to just continue to have 
meetings with not only ourselves but with your groups with the 
regulators and say, hey look, we have to coordinate. This is 
still going on. They are still at the bottom.
    And quite frankly, I have actually told some regulators, I 
said this culture is all the way down to the bottom and you are 
going to have to go all the way down to the bottom to reach 
this.
    Mr. Schneider. Oh, I absolutely think so. We certainly 
learn a lot from our Federal counterparts on certain issues. I 
think they have a lot that they could learn from us. And the 
more we collaborate and the more we cooperate is a way that is 
starting to change that culture.
    Chairman Luetkemeyer. Well, actually we are at the end of 
our hearing here and we have a couple of minutes because I know 
we are going back into session here shortly. But I would be 
willing to let each one of you have a couple minutes just to 
close if you would like to answer a question that didn't get 
enough time to or just make it brief. We don't want 5 minutes.
    Mr. Schneider. Oh yes, absolutely. I would just like to 
thank the committee for listening to us, for getting a better 
understanding of what State regulators do, the information that 
we are providing on this topic through our call report, the 
degree to which we are trying to make regulation more efficient 
and more effective.
    I appreciate you listening to us, and for helping us where 
the law needs to be changed a little bit to work better with 
our Federal counterparts.
    Chairman Luetkemeyer. Mr. Baxter, you have a couple 
comments?
    Mr. Baxter. I would like to thank the committee for holding 
these hearings today and for giving us an opportunity to 
express what it is that the National ATM Council and the ATM 
industry private sector as a whole would like to move forward 
with in regards to working with the OCC, the regulators and 
anyone else that the Government thinks is necessary for our 
industry to be able to survive, thrive, and move forward 
supplying cash to America.
    Chairman Luetkemeyer. Very good.
    Mr. Oxman, any final comments?
    Mr. Oxman. Thank you, Mr. Chairman, and thank you for the 
opportunity on behalf of the Electronic Transactions 
Association to be here today. Our members are actively 
deploying FinTech products and services to prevent fraud and 
more importantly to enable commerce in this country, to enable 
merchants and consumers to continue to drive our economy with 
retail purchases.
    And we appreciate the opportunity to explore how a 
regulatory environment can be better conducive to the 
deployment of the type of FinTech products and services that 
prevent fraud and enable commerce in this country. Thank you.
    Chairman Luetkemeyer. Dr. Orozco?
    Dr. Orozco. Thank you very much, too. I think the main 
issue is to redirect the attention from de-risking into risk 
prevention. And the instruments exist to do that. And in that 
line, there are differing methods to continue enforcing the law 
without sacrificing financial access for businesses or 
individuals. Thank you.
    Chairman Luetkemeyer. Well, I would like to thank the 
witnesses for your testimony today. You have been great, a lot 
of great comments and appreciate your frankness.
    Without objection, all members will have 5 legislative days 
within which to submit additional written question for the 
witnesses to the Chair, which will be forwarded to the witness 
for their response. I ask each witness to please promptly 
respond if you are able.
    Without objection, all members will have 5 legislative days 
within which to submit extraneous materials to the Chair for 
inclusion in the record.
    With that, this hearing is adjourned.
    [Whereupon, at 11:24 a.m., the subcommittee was adjourned.]

                            A P P E N D I X



                           February 15, 2018
                           
                           
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